Patxi's Pizza responds to settlement over health care law

Patxi's Chicago Pizza has agreed to a settlement agreement with San Francisco over allegations that the chain violated parts of the city's Healthy SF health care law.

City officials claimed that Patxi's shortchanged employees between a 2009 and 2011 time period cited in the complaint. According to the San Francisco Chronicle, Patxi's agreed to pay $320,000 for the settlement.

Still, despite the agreed-upon settlement, Patxi's believes the statements released by the city and the details surrounding the surcharge have been presented unfairly. The chain points out that there was no shortchanging of employees, as funds collected from a surcharge were actually set aside for employee health care costs. Other claims by the city, Patxi's says, were simply the result of a clerical error that was immedialy rectified upon discovery.

Part of Patxi's settlement payment includes the chain's employee health care costs, which will increase by approximately $100,000 this year. The chain also will distribute $205,000 to the 115 current and former employees who were eligible for health care benefits during the two-year period in question. The remaining $15,000 of the settlement will go toward penalties issued by the city.

The complaint arose from an investigation by San Francisco officials uncovering that Patxi's had been collecting a 4-percent surcharge from customers to cover the costs of the city's new health care law. However, city officials charged that the money was being used for other purposes.

To avoid a lawsuit, Patxi's agreed to change its practices, according to the Chronicle.

San Francisco City Attorney Dennis Herrera last week released the following statement about the settlement:

Based on the company's conscientious and productive effort to resolve this dispute, I am perfectly comfortable to continue being a loyal Patxi's customer. But today's settlement should send a strong message that San Francisco is serious about making sure that restaurants keep their promises to their customers about health care coverage.

Patxi's clarifies city's statement

Patxi's has issued a response to the city's original statement that it says clarifies details surrounding the surcharge.

CEO Bill Freeman said in the response, "Contrary to information released, Patxi's has never spent money collected through surcharges on anything other than health care for their employees (unused balances sit in a liability account, waiting to be paid out to employees). Additionally, Patxi's did not collect any money from customers in 2009 and 2010 by way of a surcharge."

The collected money sat in a liability account waiting to be used for health care purposes, according to the company, a practice that is within the regulations of Healthy SF. Patxi's has until the end of 2013 to apply it to employee health care. The aforementioned statement from the city, the chain contends, is therefore "ambiguous."

Patxi's also released a timeline to further clarify its position that reads in part as follows: "In the beginning of 2011, Patxi's discovered a reporting error in 2009 and 2010 on the health insurance account balances for its employees, which was corrected immediately and in accordance with Healthy SF regulations. When the city contacted Patxi's about this matter in late 2012, the company had been in full compliance for 13 months.

"Though this was an unfortunate clerical error, Patxi's made a business decision to avoid expensive and distracting litigation with the city of San Francisco, and instead accepted a settlement offer from the city."

Patxi's added the surcharge to its menu in 2011 to offset the increasing cost of employee health care. Also that year, Patxi's paid every health care claim filed by their employees, the total of which amounted to less than what was collected for that purpose, according to the company. Company accounting records reflect that the unused surcharge funds were set aside to pay future health care claims, Patxi's said.

In August of 2012, Patxi's eliminated the health care surcharge from the menu, and, this year, will be removing all surcharges from the menu. Instead, Patxi's will adjust the menu pricing at San Francisco locations to ensure that sufficient funding is available for employees in accordance with the Healthy SF regulations.

"We hope this will ease speculation about our intentions and protect our reputation as a community-minded and fair organization that goes above and beyond for our employees," Freeman said. "As an example, last year, one of our new managers suffered a stroke prior to their health coverage being active. We informed his family that we would keep him on the payroll indefinitely, even if he were never able to work again. Our employees come first, always."

Patxi's has also released statements about the settlement through its social media channels, including Facebook, where today the company posted an apology to patrons who "feel they've been wronged or misled as a result of this news."

San Francisco's health care coverage law passed in 2006 for adult residents who weren't qualified for Medicare of MediCal. The law was upheld after a lawsuit was brought by the Golden Gate Restaurant Association, which sued over the requirement that employers provide health care to employees.

Alicia Kelso /
Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.